Why PMC-Sierra Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of PMC-Sierra bottomed out at a 10% loss early in the day, and have now settled into a loss of about 7%, thanks to a disappointing earnings report.

So what: PMC's revenue dipped by 7% year over year to $127.9 million, and earnings per share fell 11% year over year to $0.08. While the EPS result hit Wall Street's target, revenue fell short of the $130.4 million consensus. Guidance for the third quarter, which set a revenue range of $126 million to $134 million, also came in a bit below the consensus of $137.8 million.

Now what: No one likes to hear about the "uncertain environment" of a wobbly economy, but CEO Gregory Lang made note of this issue even as he provided soft guidance for the future. PMC's EPS and free cash flow both remain near multiyear lows, and even after today's drop it seems as though the stock might not be cheap enough. I'd wait on the sidelines while these problems are worked out.

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